Tags: soros | corzine | mf | italy | euro | bond

Soros Takes on Corzine’s European Bond Bet

By    |   Friday, 09 Dec 2011 12:34 PM

Often in financial markets, one investor’s loss is another’s gain. That’s what hedge fund legend George Soros is hoping, as five weeks ago his family fund bought about $2 billion of European government bonds formerly owned by MF Global Holdings, The Wall Street Journal reports.

The bond positions – mostly in Italian debt – were created by MF Global at the behest of its then-CEO Jon Corzine. MF Global had more than $6 billion of European bonds before blowing up in October, when those positions plunged.

Soros bought the bonds from accounting firm KPMG, MF Global's bankruptcy administrator in London. Earlier this year, Soros Fund Management put some of its holdings into safe, liquid investments, which provided it with the cash to buy the European bonds.
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Knowledgeable sources told the Journal that Soros purchased the bonds below their then-market value. Soros still holds the bulk of what he bought, and may be in the black, they say.

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George Soros
(Getty Images photo)
Soros is taking the same gamble that Corzine did, betting that Italy won’t default on its debt before the bonds mature in December 2012, or at least before he sells them. That essentially means Soros is betting that the euro won’t collapse.

He’s taking a risky stance, given the European Central Bank’s unwillingness to act as a lender of last resort to struggling member nations. The crisis has shown signs of spreading to France and Germany. And many banks already have adopted contingency plans for a dissolution of the euro.

To be sure, Italian bond prices have mostly risen in recent days, with the yield on 10-year government bonds standing at 6.5 percent Friday, even after rising from Thursday, down from more than 7 percent last week.

On Friday, European leaders announced yet another plan to stem the crisis, but economists and investors questioned whether it will be enough.

Perhaps the most important plank of the proposal was an authorization for euro zone nations to give the International Monetary Fund up to 200 billion euros ($268 billion) in bilateral loans. That money could then be used by the IMF to make loans to the beleaguered nations of Italy and Spain, the euro zone's third- and fourth-biggest economies.

But economists and investors said that aid may provide little more than temporary relief to the mushrooming crisis. Moreover, Italy has expressed reluctance to accept aid from the IMF.

"It's not the grand bargain some people had been hoping for," David Mackie, an economist at J.P. Morgan, tells Reuters. "A door has been opened with the IMF channel, but some people may say that 200 billion euros is simply not enough."

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Often in financial markets, one investor s loss is another s gain. That s what hedge fund legend George Soros is hoping, as five weeks ago his family fund bought about $2 billion of European government bonds formerly owned by MF Global Holdings, The Wall Street Journal...
soros,corzine,mf,italy,euro,bond
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2011-34-09
Friday, 09 Dec 2011 12:34 PM
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